The world of managed services is quite different from traditional break-fix services. With break-fix, you want to have as many Techs billing as much hours as possible where as with managed services, you want to have as least billing hours from your Techs as possible. Once you wrap your brains around the 180 degree flip in thinking, you will be better prepared to set pricing and SLAs for managed services.
Pricing obviously range by country. It seems that the average hourly rate is about $100, but most MSP are hoping for north of $150. How you price should be determined by customer and the overall SLA required. Will it be per device, per user, tiered or value based? Maybe your pricing formula will change based on the client and competition. Should you have a standardized pricing model or one that is flexible?
Your pricing has to vary by service type because your cost will vary depending if it is Server Support, Desktop, BYOD/Mobile Device, Remote Monitoring, Security, Back Up/Recovery etc.
Building your Service Level Agreements (SLAs) will require significant detail to ensure you can deliver as promised and still make a reasonable profit. If you over promise and cannot deliver, you may take a hit in performance reviews and subsequently the potential lost of the client. It is mission critical to build-in enough margin for you to comfortably deliver on all aspects of your contract. Finding the right mix between remote management and onsite requirements is another important factor in your pricing model. Nothing eats up cost like having to physically go to clients.
Creating a comprehensive service catalogue is important and reviewing service contracts’ history is mission critical to adjusting your pricing. Price matching for managed services may not be a wise decision because your competitors may have a different cost-infrastructure or may simply not be accounting for their actual costs. This is quite different than matching a price on a notebook computer. Avoid impulsive decision to cut pricing based on winning the sale. Keep your cost and service level requirements in mind at all times.
Having a product catalogue to go along with your service catalog is critical. Products lead to generating more managed services. Some research shows that VARs can increase their profitability by as much as 30% with a balanced mix between products and services. Instead of thinking of products as “lost-leaders” considering bundling a variety of services with each device out of the box. Yes, the margins on products are low, but you can still leverage and pad with services and accessories to make good profits. Keep an eye out for Hardware as a Service (HaaS) because the opportunity is emerging to offer hardware in a similar way as service – on a monthly recurring fee.
Research your RMM and PSA Vendors for white papers and surveys that they do with their customer base. They will give you very good “ballpark” data to get your pricing model fine-tuned. Try not to stick to a fixed pricing model as many factors can change to affect your cost. A dynamic pricing strategy may be best until you generate enough history to accurately know your costing. A Service Automation tool can help you measure your costing, but you need to weight this with the implementation and compliance time required.
Another big question that VARs and MSPs ask is what percentage of their business should be service. It depends on your business model. Heavy MSPs typically have over 75% of their business in service contracts. Entry level VARs/MSPs have less than 10%. The goal should be to generate as much profitable business as possible. While signing up those recurring revenue managed service contracts are exciting, remember to add products to the mix to fuel more services.
Check out this global MSP service survey report from Kaseya. Check your other RMM and PSA vendors for their reports.